Global Accounting Standards
Global Accounting Standards
In the business world, global accounting standards were popularly known as International Accounting Standards (IAS) developed by the International Accounting Standards Committee (IASC). To date, the International Accounting Standards have been changed to International Financial Reporting Standards (IFRS) and are regulated by the International Accounting Standards Board (IASB). These standards are concerned with financial statements and mainly focus on how transactions and other financial events should be reflected in the financial statements. The IFRS are in use, in many countries across the world due to the beneficial assistance they accrue to investors, financiers and other business entities that utilize financial reports (Hill, 2008).
The IFRS have been adopted by more than 113 countries over the world including members of the European Union, gulf Arab states such as Bahrain, Saudi Arabia and Kuwait, Australia, Canada, Pakistan, India, Malaysia, South Africa, Turkey and Russia. Adoption of international accounting standards has been directly linked to the reduction of costs due to the comparison of alternative investments and the increase in the quality of information. Moreover, companies are also being encouraged to support and adopt the international standards since it will enable them receive more financing from investors. Usually, the IFRS have set requirements that have to be adhered to for adoption of the standards. Countries are required to produce a Balance Sheet to illustrate the financial balances. They are also required to provide inclusive Profit and Loss Account statements in addition to a Comprehensive Income Statement, and statements that indicate the varying equities and the respective company cash flows (IASB, 2003).
Australia, together with Europe, was one of the countries that initially adopted the IFRS for domestic basis among the developed countries. The Australian Accounting Standards Board (AASB) is the organization responsible for the international accounting standards in Australia is. The board is responsible for the maintenance and development of financial reporting standards appropriate to businesses in the public and private sectors of the economy of the country. The AASB also contributes to the improvement of universal financial reporting principles and eases the contribution of the country in a global setting of standards. The AASB derives its powers from the Australian Securities and Investments Commission (ASIC), which is the body responsible for regulation of financial laws to safeguard Australian clients, investors and creditors (AASB, 2009).
There is substantial divergence from the international accounting standards by the Australian accounting standards. First, the Australian standards incorporated no valuation for financial intangibles such as internally developed software. However, the IFRS allows for the valuation of intangibles in an active and liquid market. This further ensures that all the financial assets and liabilities of a company should be recognized. Secondly, the Australian standards have no equivalent such as those specifically for the public sector such as AAS 27, 29 and 31, AASB 1022 Accounting for Extractive Industries and AASB 1023 Financial Reporting for General Insurance Activities. Such standards will continue being enforced until another equivalent has been developed. The standards were developed as a core method of increasing the role of the Australian companies in the global community and improving the international competitive edge of Australian companies due to increased globalization (Picker, 2009).
According to the CIA Factbook, 2010, Australia has abundant and diverse natural resources that attract high levels of foreign investments. Such resources include coal, iron ore, copper, gold, natural gas, uranium and renewable energy sources. The Gorgon Liquid Natural Gas Project is a major investment costing US$ 40 billion that will also expand the resources sector. The country also imports oil at 731400 barrels a day, natural gas at 5.99 billion cubic meters and imports other commodities such as machinery, telecommunication and transport equipment and parts, computers and office machinery, crude oil and petroleum products. The countries involved in exportation with Australia are the Republic of China, which is the country’s largest exporter at 18.5% followed by the United States at 11.4%, Japan at 7.9%, Singapore at 6.3% and Germany at 4.7%. The total imports for Australia as of 2011 were estimated at 243.4 billion US dollars (United States, 2010).
Australia is also an efficient exporter of coal, iron ore, gold, meat, alumina, wool, wheat, machinery and transport equipment. The country mostly exports natural gas at 24.7 billion cubic meters due to its large natural gas reserves at 3.115 trillion cubic meters. Australia also exports 312600 barrels of oil per day. Australia’s export partners include China at 27.4%, Japan at 19.2%, South Korea at 8.9% and India at 5.8%. The total exports for the country amounted to 272.1 billion US dollars at the end of 2011. The difference in the import and export data further shows the economic soundness of the country since the imports (even though extensive) have not exceeded the amount of imports therefore, balancing Australia’s economic system.
Australia comprises a majority of settlers who originated from the British Isles thus indicating that most of the Australians are of English descent. The population has also risen considerably since World War 1; however, with a population density of 2.8 individuals in every square kilometer, Australia remains as one of the countries with the lowest population density in the world. Similar to most first world countries, Australia is going through an alteration indicating a reduction in the youth population. Most Australians practice Christianity with it being the main religion at 61%. Throughout the country, education is compulsory and mandatory for children aged from 5 years to 16 years, while children aged from 16 to 17 are required to attend either school or vocational training. The adult literacy rate in the country is assumed to be at 99% and has 39 universities and many specialist institutions. Australia is recognized as one of the most costly nations to seek higher learning especially at university level. Australia’s life expectancy rate is the fourth highest and has the highest skin cancer rates in the world (Ward, 2011). The health expenditure consumes 9.8% of GDP whereby the hospitals are administered and handled by the country states whereas the subsidies are provided by the Commonwealth. The country’s national culture is largely persuaded by western culture. American popular culture has also largely influenced Australia, while other cultural influences emanate from Asian countries and non-English speaking immigrants. The main course that defines the Australian culture is the love for wine, which is also one of their largest exports contributing US$ 5.5 billion to the economy (Ward, 2011).
The gross domestic product (GDP) of Australia is valued at US$ 40800 per capita indicating that Australia’s economy grew by 2%. The increase in GDP of the country from the preceding years signifies that Australia’s economy is positively growing at a reasonable rate due to high performance of the county’s key growth sectors such as agriculture, industry and the services sector. The inflation rate of the country is also estimated at 3.4% increasing from a rate of 2.8% in 2010, placing it as one of the countries with the lowest inflation rates. Low inflation rates have a positive impact to the economy since investors are able to inject a large amount of finances for their investments without facing massive fees or charges because of the increase in price, in commodities, making it one of the largest economies in the world (United States, 2010).
Accounting standards are valuable for any economy since they enable financial transparency between companies. Furthermore, these standards influence the rate of investments to rise due to the financial honesty in the business practices of the company. Despite the claims that long run financial transparency can damage the profitability, it is evident that the incorporation of accounting standards into companies enables such entities to increase their financial position and enhance positive investor and customer credibility for the business organizations.
Australian Accounting Standards Board. (2009). First-time adoption of Australian accounting standards. Melbourne: Australian Accounting Standards Board.
Hill, C. (2008). International Business. 7th Edition. McGraw Hill/Irwin.
International Accounting Standards Board. (2003). International financial reporting standards. London: International Accounting Standards Board.
Picker. (2009). Australian accounting standards. Milton, Qld: John Wiley & Sons Australia, Ltd.
United States. (2010). The CIA world factbook 2011. New York: Skyhorse Pub
Ward. (2011). Australia. London: Wayland.